Real Estate Investment Strategy #4: Let’s Go Bigger

Today our guest is Thomas Brandt, who 17 years ago used his profits derived from his IT consulting firm to purchase four apartments house in Örebro. Today Brandt owns about 250 apartments and runs his own business known as Explicar Affärsutveklirebrong AB. We met Thomas at his office in Stockholm and talked about how to invest, start and run a property management company.

How did you start?

17 years ago I realized that the economic climate within the IT industry was becoming stagnant. And because I made some money in the past with my IT firm, I decided to invest in stable, profit-generating long-term assets. So, since I had relatives who owned and operated properties, I decided myself to buy some as well—in Örebro. I knew nothing about property management at the time.

Where do you buy?

Because I don’t have hundreds of millions in my accounts, I buy houses in relatively smaller cities, as opposed to larger, more expensive cities. In fact, almost every city in Sweden with a population of 80-100 thousand is experiencing a housing shortage. Small-city houses cost much less and mature in price fast—and the cash flow from rents are a great source of steady income.

What is your strategy?

We make money two ways: Cash flow from our tenants and the growth value of the real estate. We normally choose an area that is within a 20 km in diameter of a main city (these areas have a high employment rate) with good public transportation and a well-planned infrastructure providing easy access to banks, post office, schools, shops, etc. Now I’m looking to expand beyond 20 km.

How much money do you need to start?

You can certainly take a loan on your company. And even if you have 20% of the house price banks can actually ask you to use private funds in order to secure some kind of guarantee that you’ll pay back the loan. This is common with “first deals” with a bank. If you show a profit from the first loan, loans after that become much less strict, so to speak. The percentage on a loans for real estate is usually a bit higher than on private loans. But in my case the percent is lower. For some deals that I have, the percent is 1.4%….because I have a solid, trustworthy relationship with banks that I do business with.

Relationships with banks?

Your bank of choice should be the bank that knows you and your credit history. However, I was recently denied a home loan by my regular bank because they thought it was not a profitable investment for me, and ultimately for them. So, I went to another bank and was granted a loan without any fuss at all.

Competitors?

Stockholm companies are more and more investing outside of Sweden, like Norway for example. Today, Norwegian companies are very active and operating in Sweden as well—so as an investor you need to think one step ahead

Is it difficult to find tenants?

No, not all—however it does take an effort to find a good one. For example if you suddenly find that your tenant often bothers other tenants, has three huge dogs, or invited ten people living with them—then you have a problem. There is very little you can do about protecting “the good tenants.” Interested tenants can put themselves in line on our web page http://expenser.net/. There are a lot of companies like mine around in Sweden who provide first-hand contracts.

How do you find objects?

Responsibility?

As a property owner, when we sign an agreement, we have a clause that the previous owner has no responsibility for the building after it is sold. It is good and bad at the same time. But as a multi-property owner, it does not work to have control over all buildings, so we just sign the clause.

Due diligence?

Yes, sure. I usually check all economic reports and maintenance plans—that’s basically it. When you buy a house, you will see max 2 apartments in the whole building. So it is always kind of “cat in the bag.” Things to consider? There are a lot of different ways to buy and sell properties. How you structure your company (or concern) will influence how you pay taxes. So, take this in account when you begin.